Deferred payment agreements

1. 1

   The council pays the care home

   Week by week

   Once the agreement is signed, the council pays the fees it agrees are needed to meet your relative’s assessed needs, or lends the money to your relative in instalments so they can pay the home themselves. Either way the home gets paid on time and nobody has to put a house on the market to make that happen.
2. 2

   A legal charge goes on the property

   At the Land Registry

   In return the council registers a first charge against the house, in the way a mortgage lender would. Your relative still owns it. A council must accept a first charge as security, and where it cannot have one it may consider something else, such as a guarantor or a solicitor’s undertaking.
3. 3

   Interest and charges are added to the total

   From the start

   The debt grows. Interest is charged at or below a maximum the government sets, administration charges are added as they arise, and both can be paid as you go instead if your relative would rather keep the total down.
4. 4

   The whole amount is repaid later

   On a sale, or from the estate

   Your relative can repay at any time and the charge is then removed. Otherwise the money comes out of the sale of the house, whenever that happens, or out of the estate afterwards. The payment is delayed, not written off.

There are two forms of it. In the ordinary form the council arranges the care home place and defers the charges your relative owes it. In the loan form your relative arranges the place themselves and the council lends them the money in instalments. A council must offer a deferred payment to a self-funder as much as to somebody whose care it arranges.

Funding care sets the ways of paying side by side, self-funding your care covers how savings and the house are counted, and how to privately fund care puts equity release and downsizing beside a deferred payment.

The rule behind the left-hand column is short. Where somebody has their care needs met anywhere other than a care home, the value of their main or only home must be disregarded in the financial assessment. It is not counted at all, so there is nothing for a deferred payment to attach itself to. Care at home is paid for from income, savings, benefits such as Attendance Allowance, and the council's contribution once savings fall far enough. Local authority funding works through that assessment line by line, and how live-in care is funded does the same where a carer is in the house all week.

If your relative moves into a care home and later moves back home, tell the council: deferrals stop when somebody stops needing care in the setting the agreement was written for, and what has already been deferred is still repaid in the ordinary way. Care at home or a care home sets out what each does well.

Nobody can be pushed into a deferred payment agreement. If your relative cannot make the decision themselves, an attorney under a lasting power of attorney for property and financial affairs, or a deputy appointed by the Court of Protection, can agree one in their best interests. There is a practical trap where the house is jointly owned and you hold the power of attorney for the other owner: Land Registry rules generally need two different people in the two roles, so a second attorney or trustee may have to be appointed first. Paying for care as an attorney covers the duties that come with it.

Ask the council for its published list of charges and its current interest rate before agreeing to anything, and ask for an example showing the balance after a year and after five. The written agreement has to set out how interest is worked out and whether it is compound, the charges your relative is liable for, how to end the agreement, and what happens if the value of the security changes. Your relative must get a hard copy and time to read it, and the terms have to be in plain English.

The two slices held back do a job. Interest goes on running after the limit is reached, and administration charges can still be added, so the cushion stops the debt overtaking the value of the house, and it absorbs a fall in house prices. Everything counts towards the limit: the fees, the interest and the charges. The arithmetic and the worked example above are both in chapter 9 of the Care and Support Statutory Guidance.

The council has obligations as the total climbs. It must send a written statement at least every 6 months, and within 28 days if you ask, showing what has been deferred, what interest and charges have accrued, the total owed and how much equity is left. It must give 30 days' written notice before the limit is reached, and say how the fees will be met after that. By then your relative's capital may have fallen far enough for the council to start paying its share instead, which is what the review at 70 per cent is for.

Repaying early costs nothing beyond the interest and charges already accrued, and the council must remove the charge once it has the full amount. Where the family would rather keep the house, the balance can be settled from savings, from a life policy or by a relative, and the council has to accept that if it covers everything due. Renting the property out is allowed, and the council should let your relative keep a share of the rent. Take advice on tax and on being a landlord first.

Before signing, ask for three things in writing: the interest rate and how often it is compounded, the list of administration charges with the amounts, and the equity limit with the valuation behind it. If the valuation looks low your relative can commission their own and ask the council to agree a figure first. And take independent financial advice. An adviser qualified in later life finance can price a deferred payment against selling, against renting and against the products built to cover care fees, which is hard to do well from inside a stressful fortnight.